In this study, we employ the newly developed panel unit root test and cointegration technique to determine the long-run relation between stock prices and dividends in Taiwan’s stock market during June 1991 to February 2005. Panel methods amplify the power and precision of the estimation procedures, allowing to concentrating on both the short- and long-run relations. The results indicate that there exists a significant cointegration relationship between stock prices and dividends. These findings further support the existence of stock price increases relative to fundamentals. Different from previous studies, our results reveal that stock prices adhere to dividends and rational bubbles were nonexistent in the Taiwan’s stock market.